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Is it grim up North?

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NORTH EAST

Even with the welter of construction projects under way in the region, life is still fairly bleak, according to the forecasters

Economic expectations for the North East remain subdued; while growth of two per cent is forecast, the region still has the highest rate of unemployment in the country.

Manufacturing has underperformed and is expected to be the worst in the UK.

Construction output in the region fell by 10 per cent in 2000 and continued to fall in 2001. However, driven by the office, housing and health and education sectors, it is expected to show a rise of four per cent during 2002, with further growth of three per cent per annum during the next two years, although industrial sectors will continue to slump and infrastructure will disappoint.

Construction workload

Demand for offices rose by eight per cent last year with the financial and business services sectors particularly buoyant, and output is forecast to rise by 10 per cent this year.

There is a lack of good office space in Newcastle city centre, where rents rose by 21 per cent in 2001 - the highest for any UK city - with further increases expected. City Gate and Lloyds Court phase two in Newcastle, and Watermark Office Park, just across the river in Gateshead, should go some way towards answering demand. The Single Regeneration Budget, meanwhile, is helping to provide for further developments, including 25,000m 2of commercial floorspace in central Middlesbrough. The retail sector remains buoyant, a £60 million regeneration of Newcastle's Byker area has been given planning permission.

The development of Newcastle Quayside in the past few years has totally changed the area and further developments are planned.

These include Broadchare, a £45 million mixed-use scheme providing offices, hotel, car park and retail space, which is due to start later this year; and Imperial Quay, a £30 million mixed-use scheme, comprising 10,000m 2of offices, 62 apartments and 1,500m 2restaurant, which should start on site early next year. Across the Tyne, the Baltic Business Park in Gateshead, a £250 million development close to the Baltic Centre for Contemporary Art, is also due to start next year.

Further north, the £700 million Newcastle Great Park scheme will develop 400ha in a 10-12-year project, which will provide 2,500 new homes and an 80ha international business park to include leisure, community and academic facilities. English Partnerships is providing the infrastructure and Sage Computers has already commenced construction of its £45 million headquarters.

Construction of industrial buildings fell by 33 per cent in 2000, and rose by eight per cent last year, but manufacturing in the region continues to suffer and the outlook remains poor, particularly since industrial floorspace availability increased by 32 per cent last year. The North East has suffered through its long-term connection with the heavy industrial and engineering sectors, and more latterly the electronics industry.

Private housing activity in the North East dropped by 27 per cent between 1998 and 2001, although it is expected to rise by 12 per cent during 2002. House prices in the region are 37 per cent below the national average, and house price rises are slowing.

Large-scale regeneration of residential areas of west and east Newcastle is planned in major schemes which are awaiting approval from Newcastle City Council. If they get the go-ahead, the schemes will see the provision of upgraded accommodation costing hundreds of millions of pounds.

Infrastructure projects, which are providing substantial workload across the rest of the country, are very disappointing for the region, with a fall in output of nine per cent forecast for 2002. A number of large projects have recently finished, and one of the few schemes planned is the £140 million road tunnel under the Tyne, planned by the Tyne and Wear Passenger Transport Authority and due to start in 2004.

Education orders have been rising steadily. The North Tyneside Schools PFI is due to start this year and will include four new schools in north Tyneside; also planned are two new schools in Stockton and a £10 million football academy in Sunderland, which is currently under construction. Elsewhere on Tyneside will be six new fire stations, a training centre and a headquarters building with a value of £21 million.

Contractors' costs

During the year to September, contractors' input costs for labour and materials in the North East rose by eight per cent; costs in the region are still running at about two per cent below the UK average and some 11 per cent less than London rates.

Labour rates in the North East rose by 10.5 per cent during the past year and now average £115 per day for skilled workers, approximately four per cent below the UK average; contractors are reporting difficulties in finding bricklayers and plasterers.

Materials prices in the region rose by 7.5 per cent in the past year, boosted by a 20 per cent increase in the cost of reinforcement bars during the quarter.

Tender prices

The state of order books very much dictates contractors' views of their own market.

Prices in Newcastle city centre are likely to be much higher than elsewhere, with contractors busy and subcontractors in some trades being more choosy.With workload in the region subdued, it is likely that building tender price rises will be below the national average.

David Hern is manager of EC Harris' Newcastle office, tel 0191 261 1946

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